When family members enter into the equation, planning can become more complicated.

To date, small business succession planning trends don’t look good.  One study estimates that 70 percent of family businesses will fail to make it to the next generation. With 98 percent of all farms owned by families, the imperative for planning is clear for farm operators who would like to transition their land and operation to the next generation.

While legal structure, estate documents, business documents and financial instruments are all important to a successful farm transition plan, this article focuses on another important part of the planning equation: People.

  • Consider this hypothetical farm situation. Here is the background:
  • The farm operator is 60 years old
  • He is married to a supportive wife, a trusted partner in the farm operation
  • They have 4 children – three sons and a daughter
  • Oldest son works on the farm. He has always been expected to help out with the workload and carries more of it than the other three children  
  • Second son also works on the farm, never finished school and is a bit of a problem child  
  • Third son went to college, majored in business administration with a minor in agricultural science. He is a lot like his dad, which causes relationship problems
  • Last child is a daughter. She has a close relationship with her mom and is the apple of dad’s eye.  She is married and works in town as an elementary school teacher
  • Dad has a preconceived notion the farm should be operated by the oldest son who spends the most time working with
  • Dad also feels, like Mom, that all four children should equally own the farm and the two active sons should make decisions on operating the farm.  They believe this is “fair.
  • Estate documents reflect equal ownership; no business documents have been drafted or installed

Taking the above scenario into consideration, it’s time to ask some hard questions

  • Can the farm survive if you divide into it four equal parts?
  • Will a farm that is barely providing a living for two families be able to successfully provide for four?